The Next Big Thing: Make Your Own Trading Algo

I can see for miles and miles, and a few years from now all of the online brokerage firms are going to be offering retail frequent traders the ability to build, backtest and employ their own trading algorithms. In an article two years ago I foresaw this, see ‘Where Are the Customers’ Bots?‘ at the WSJ.

Anyway, Tomio Geron at Forbes tells us this week that the make-your-own-algo products are getting very close, very quickly, thanks to a startup called Quantopian…

From Forbes:

High frequency trading has been scrutinized in recent years because of its links to financial scares like the Flash Crash. But the actual algorithms used to power much of high frequency trading are not well understood, and locked up in hedge funds and large financial firms.

Startup Quantopian, which is coming out of beta today, aims to make these algorithms available to a much larger audience…

Quantopian provides market and company data for people to create their algorithms. They write the code on Quantopian’s site, then can run the algorithm on the site’s back-testing simulation to see how they would’ve performed historically. All algorithms are private by default. Quantopian does not have connections to live trading yet, but eventually plans to add that so traders can use their algorithms to trade through third party brokers. Quantopian has made its back tester tool open source to enable others to assist in developing the tool.

Now of course this won’t work at all for anyone over any length of time as everyone will be able to test and re-test each others’ edges. They’ll all pick up on the same one and pile in so as to render them non-existent. This will play out a million times over until every quantitative strategy conceivable becomes worthless.

But it will be fun to watch, like a million imbeciles in the same California stream panning for bits of gold while the outfitters of their expeditions are making the real money.